CBH rebate debate divides opinion among WA growers

CBH has slashed its predicted grain carryover from last harvest to less than 3.5Mt but the news is of little consolation to farmers furious about receiving prices $150 per tonne lower than world parity for their grain.

The grain marketer and handler this week unveiled plans to redirect part of a “significant surplus” it expects to hand down from CBH Grain — its marketing and trading division — to its storage and handling division to fund improvements across WA’s grains supply chain.

It is the first time in the co-operative’s 88-year history the company has done so, and comes as CBH plans to roll out $250 million on network upgrades each year for at least the next five years, to meet the requirements of a growing crop size, an ageing receival network and the demands of a narrowing shipping window to capture maximum value for growers’ grain.

CBH chief executive Ben Macnamara revealed this week the co-operative had sought advice from the Australian Taxation Office and the Australian Competition and Consumer Commission before making the call to direct some of the marketing and trading surplus to its storage and handling division.

“It would be foolish for us to not go and seek that advice… to ensure that this is an appropriate use of growers’ capital, and also that it is tax effective,” he told media on Monday.

“We wouldn’t have declared a dividend on the basis if it wasn’t tax effective, so we’ve worked with the tax department and we’re assured that is appropriate, and on that basis, we have claimed a franking credit for the dividend that was declared.

“In that instance, it’s approved by the ATO.”

Mr Macnamara would not confirm speculation among some industry players that CBH Grain was expected to post a surplus of between $550m and $600m for marketing and trading.

The grain marketer and handler is expected to hand down a significant profit when it releases its annual report in early December, on the back of the Ukraine war and surging global demand for grain.

The co-operative has shipped a record 17.69Mt of grain from the Geraldton, Kwinana, Albany and Esperance ports during the 2021-22 shipping year, which finishes on October 30, with carryover from last harvest sitting at less than 3.5Mt.

After flagging a record surplus for the year to September 30, CBH recently announced it would forego rebates for its farmer members for a third year in a row, opting to instead turbocharge investment into the State’s lagging grains supply chain.

Mr Macnamara said CBH had paid $430m to growers in rebates during the past 10 years, “and that is money that could have been invested into the network”.

“The next aspect we also gave considerable consideration to was M&T’s balance sheet,” he said.

“If you go back a couple of years, (there was) a significant loss that was in excess of $100m, and so the consideration we gave here was, one: we need to repair the balance sheet from an M&T perspective; and two: we need to make sure that we’re planning for the future.

“We’re seeing larger crops, we’re forecasting an average of 22 million tonnes into the future, and therefore, we need that balance sheet resilience.

“We’re also seeing higher priced crops, so we’ve also got to make sure that we’ve got the capacity to fund that as well.

“And on top of that, we also want to ensure that we’ve got the resilience to be able to deal with the volatility that we’re seeing in markets.”

CBH has been left scrambling to counter historical underinvestment in the WA grains supply chain with the pressure points made clear after receiving 21.3Mt of last year’s record 24.3Mt harvest.

The co-operative’s leaders are understood to be pushing State and Federal leaders for more money to bolster the supply chain after recently receiving $200m for the grain on rail network’s biggest upgrade in more than a decade.

The funding — which includes $160m of Federal and $40m of State cash — would see rail sidings at 11 of CBH’s busiest grain bins upgraded, a 75km stretch of rail between Mingenew and Carnamah revamped to take heavier trains, and a small part of WA’s shuttered tier 3 grain network “progressively recommissioned” to reopen for the first time since 2013.

CBH and its 3900 grower members were expected to tip in an additional $200m to build rapid rail loading infrastructure at those 11 sites, to speed up how grain can be loaded into trains.

WA Agriculture Minister Alannah MacTiernan has publicly praised CBH for its decision to reinvest the rebates back into the supply chain.

But tensions are simmering over the prices paid to WA grain farmers, with estimates the State’s lagging grains supply chain is costing farmers $150 per tonne and more than $3 billion to the WA economy.

BusinessAg consultant David Falconer estimated the carryover from the 2021 season, combined with an expected production of 21 million tonnes plus, would result in a “conservative” seven million tonne carryover by December 2023.

“The carryover is resulting in depressed grain prices compared to a rising world market and falling dollar, which should increase grain prices,” he said.

“Since seeding is in April and May, wheat has fallen to $150 per tonne and Canola over $400 per tonne.

“Being a low estimate of $150 per tonne over 21 million tonnes, this is a conservative cost to the industry of $3.15b and more likely to be $4b for one season alone. Based on a multiplier effect of three, the cost to the State is $9-12b.

“While CBH, the main handler of grain, has a 2033 strategy, we need tactical and lateral short term thinking of how to export more grain and take advantage of world pricing so farmers benefit.”

Former Vern Dempster slammed CBH’s decision to not pay rebates to farmers, penning a letter to Countryman last week which said the move was “a significant departure from the practice of previous boards”.

He told Countryman this week he was “concerned” about the direction the CBH board was taking.

“We always used to have confidence that CBH would act in growers’ best interest; if they made a profit, they’d give it back to you via the rebate,” Mr Dempster said.

“But that’s all in in doubt now, so the motivation for their existence starts to be questioned, I think.

“Are they there to give growers the best price? Or are they there to make as much money as they can for storage and handling?”

WAFarmers grains section president Mark Fowler said he supported CBH’s decision to reinvest the surplus rather than provide a rebate to grower members.

“It is our policy at WAFarmers grains council to support this move,” he said.

“There are some of our members that have a different view, but the majority — and certainly our grains council — is strongly of the view that this money should be spent on the necessary changes to debottleneck the grain supply chain, so that we don’t continue to suffer this big discount that we’re currently seeing.

“That will ultimately save us a lot more money than the payment of a rebate will.”

Mr Fowler said investment in the network would lead to an “enduring benefit”, adding that it was “absolutely essential that this work begins as soon as possible”.

“These changes to the network are absolutely necessary. No one disputes that. We’re all in agreement the money needs to be spent, it’s just where the money comes from that’s causing discussion,” he said.

“At one stage, we were thinking carryover was going to be 5-6Mt, so for Ben (Macnamara) to say that there was only going to be about 3.5Mt, 700,000 of which is already at port, it is looking much better than it did a few months ago.

“We think those changed circumstances should now be reflected in grain prices.”

Mr Macnamara said CBH was trying to close the gap between international parity, claiming CBH was “leading the market” with demand for tonnes “very strong” and selling out quickly.

“We’re not going to apologise for leading the market,” he said.

“We are buying (multiple cargos of grain) every day… We’ve bought more grain this year so far than we have previously.

“There are bids on offer (in Kwinana), and I think the reason why it’s going so quickly is because we are leading the market, and we’re not going to apologise for that.”

A CBH spokesman told Countryman rumours the co-operative had sold its shipping slots until October 23 were “not true”.

CBH declined to make any further comment.